Journey to Net Zero

(This article was originally published on Insider Media Limited's website on 18 July 2022 (https://deloi.tt/3cmGmNJ)

Last month’s Towards Net Zero breakfast event hosted by Wales Insider provided insight into how businesses can work with partners, suppliers and customers towards net zero. However, one area that deserves further exploration is grants and incentives, and what programmes are available to businesses to help mobilise their journey towards net zero.

INCENTIVES – THE CARROT OF GOVERNMENT INSTRUMENTS

Incentives are a fundamental tool in the UK government’s armoury to promote behaviours by businesses that align with the government’s policy goals – you could call them the “carrot” to the “stick” of regulation and legislation. Whilst grants are nothing new in the UK, it is fair to say the level of funding being offered in areas of strategic focus has accelerated significantly in the last couple of years.

The UK government set the tone for its priorities back in March 2021 with ‘Build Back Better: our plan for growth’, promising £12 billion of government investment through the Ten Point Plan for a Green Industrial Revolution with the ambition of reducing emissions from infrastructure and making the UK a leader in green technologies.

This was closely followed in October 2021 by the ‘Net Zero Strategy: Build Back Greener’ which highlighted the sectors most likely to attract support through initiatives such as electric vehicle charging points, research into sustainable aviation fuel (SAF) and clean maritime demonstration. The government also published its analysis of the UK’s most emitting industrial clusters by level of carbon dioxide emissions, which included South Wales amongst others.

FOCUSED SUPPORT AND BOLD BUDGETS

Decarbonizing these industrial regions is seen as critical to achieving net zero and again this gives a clear indication of where support will be focused. More recently, the British Energy Security Strategy highlighted priority areas such as carbon capture, usage and storage, nuclear and offshore wind.

Working in the grants sector, it is fascinating to see these big bold announcements and associated bold budgets come to life through specific funding calls. These recent schemes come to mind:

There are some notable industry specifics within some schemes for obvious reasons - the pivot to electric vehicles in the automotive sector and the quest for sustainable fuel in aviation – very much sustainability focused – whereas other grants may be more aligned to developments in other sectors, for example the security of vaccine supply in life sciences.

SUSTAINABILITY: A DRIVER FOR INVESTMENT

By far, the biggest theme for many schemes is, unsurprisingly, sustainability and supporting businesses to find ways to help their transition to low carbon which in turn will help the UK achieve its net zero targets. Sustainability is a challenge facing all businesses across all sectors and having an ESG (environmental, social and governance) strategy is now a fundamental aspect of running a business. It can be seen as non-negotiable – it is of key importance to stakeholders, customers and funding institutions. For that reason – and because it is the right thing to do – ESG is firmly established as a boardroom topic now.

However, a business’s ESG journey cannot be achieved without investment and that investment payback period may not fall within what would otherwise be an acceptable timeframe. This is where grants and incentives can play a crucial role, especially as many are not industry specific and are more wide-ranging in scope. They can provide businesses with the top-up funding to green light projects which might otherwise be shelved, or to allow those projects to go ahead with a greater level of ambition and/or pace.

THE INDUSTRIAL ENERGY TRANSFORMATION FUND

Take, for example, the Industrial Energy Transformation Fund. The current call for applications is live until 9 September 2022 and its focus is supporting businesses with the deployment of proven technologies to reduce energy consumption and/or greenhouse gas emissions in their transition to a low carbon future. This competition aims to support the commercial roll out and permanent installation of technologies at industrial sites (i.e. capital expenditure).

The IETF will support the onsite deployment of technologies that improve the energy efficiency and deep-decarbonisation of an industrial process or processes and therefore has a broad application from manufacturing to data centres.

To date, Deloitte has helped companies secure more than £7.5 million of Industrial Energy Transformation Fund grant awards on this recent scheme, to deploy energy efficiency technology that will save more than 60,000 tonnes of carbon dioxide emissions.

A SHORT WINDOW OF OPPORTUNITY

Many businesses find it beneficial to engage an adviser, such as Deloitte with our team of specialists in grants and incentives, as the type and nature of funds change on a frequent basis and often have short windows of opportunity. As well as helping companies develop and pursue an effective incentives strategy, my colleagues and I provide a range of niche services, for example we work with some businesses on bespoke early–stage intelligence on grants which fit their medium-term investment strategy.

In our experience, some businesses find identifying and prioritising the appropriate grant or incentive scheme rather tricky. As for the next stages, developing a compelling case for a grant application and complying with the requirements for managing a funded project can also prove to be complex and time consuming. Working with an adviser can provide clarity and support in navigating the grants and incentives landscape.

A MISSED OPPORTUNITY?

Despite the high levels of funding apparently available through various grants and incentives, these are often overlooked or their potential not fully explored. My colleagues and I are aware that many businesses don’t take advantage of the opportunities available to access additional funds, so-called “free money” they may be awarded that will support their investment plans. Based on our experience, this is down to a number of factors which combined mean that many businesses aren’t well placed to mobilise within what can be a tight timeframe for applications and miss out on the opportunity. Common factors include:

• a lack of clarity on who within the business should have responsibility
• a lack of relevant details within the pipeline of future investments
• a lack of time and resource.

This often translates into a fairly ad hoc approach which results in a business only able to deal with the most immediate grant opportunities. Of course, rushed applications are less likely to be successful, and a lack of success can leave stakeholders lukewarm on pursuing future funding opportunities.

A STRATEGIC AND SYSTEMATIC APPROACH

I recommend to my clients that, to optimise funding, they need to transform any ad hoc approach into a strategic and systematic process. This involves forward planning applied to both the pipeline of investment projects in the short, medium and long term (viewed through a grants lens) and aligning these with current and future funding announcements (calls) and also in light of the known trends in the grants landscape.

MAXIMISE YOUR SUCCESS

Understanding the type and scale of future investments is crucial in identifying the most relevant programme to maximise the chances of success. Some examples are shown below.

Being future-focused is key. If you’re thinking about potential grant opportunities to support your business’s future investment priorities, you should take time to consider each of these:

• Objective
• Type of project
• Location
• Funding strategy
• Timing

As part of an initial assessment, my colleagues and I at Deloitte can help you explore these areas further, as well as others, to help identify the right funding opportunity that will support your investment plans.

Having a future focused approach means we have time to critically assess your business projects against funding criteria and you can make an informed decision on what funding to apply for and work with you to craft the best application in a timely manner.

LONG-LASTING BENEFITS

The benefits of getting this right are many – not only the cash received, but the acceleration of investment plans, the positive publicity that goes with an award, and the competitive advantage versus peers to name but a few.

In addition, being on the front foot often means that businesses can fund their investments’ lifecycle and unlock the full suite of innovation incentives – grants before the investments are made, research and development (R&D) expenditure credits after the expenditure takes place and then a reduced tax rate (Patent Box) applied to profits arising from patented income streams developed as businesses commercialise their technologies.

HOW WE CAN HELP

At Deloitte, we have more than 35 years of experience in providing grant advice in the UK and have a 95% success record on UK grant applications.

Our award-winning Deloitte Global Investment & Innovation Incentives (Gi3) practice is one of the largest and most experienced teams in the UK and globally, consisting of skilled professionals in finance, tax, patents, quantity surveying, technology, engineering and scientific fields. As well as government grants and incentives, we have extensive experience in R&D tax credit claims and incentives, Patent Box and Tax Depreciation. You can find out more about what our team can do on our webpage.

If you would like to discuss how my colleagues and I in the Gi3 team can support you with your business’s incentives strategy, please contact me.